Personal Comment .: A very interesting dissenting comment comming at a most appropriate time for US bonds this week .

It should weight heavily on gold price ,oil price and the US dollar while helping maintain the value of US treasury bonds being sold this week ( $ 101 Billion worth of them ) .

It also shows China's understanding of the importance of maintaining stability especialy in currency markets at a critical time .

It also shows the work of the type of democratic evolution in China when such comments are not made anonymously . Most interesting for our understanding of both the global economy and China's new role into it .

Have a good day

Tec

No dethroning dollar despite risks: China FX official

Wed May 27, 2009 1:16am EDT

BEIJING (Reuters) - The global financial crisis has tarnished the dollar and will prompt reserve managers to diversify, but the U.S. currency will retain its dominant international role, a senior Chinese official said in remarks published on Wednesday.

Guan Tao from the State Administration of Foreign Exchange, which invests China's $1.95 trillion in currency reserves, likened the risk of U.S. inflation and dollar depreciation to "blocked dams" that threatened the stability of the global monetary system in the medium term.

The phrase, 'My dollar, your problem' vividly captures the capacity of the United States to exploit the current international monetary system to palm off this crisis," he said.

But Guan said diversification brought the risk of greater turbulence in non-dollar currencies.

"In reserve baskets, the more currencies is not necessarily the better," Guan wrote in International Economic Review, a Chinese-language magazine issued by the Chinese Academy of Social Sciences, a leading think-tank.

Guan, a deputy head of SAFE's general affairs department, said the financial crisis had "struck a heavy blow to the international prestige of the dollar, and global foreign exchange and asset allocation will become more diversified."

NOT BRIGHT

Guan played down a recent proposal by central bank governor Zhou Xiaochuan for the International Monetary Fund's Special Drawing Right to eventually displace the dollar as the dominant global reserve currency.

But he said Washington was likely to learn its lessons from the crisis and the U.S. economy had every prospect of bouncing back with renewed vigor.

Indeed, although the turmoil had exposed America's inadequate savings, other countries hoped the United States would press ahead with expansionary policies to stimulate a recovery, "allowing the United States to continue performing the role of the world's ultimate consumer."

A super-sovereign currency would require the backing of the United States, which is cool to the idea; and because of its institutional underpinnings the creditworthiness of the new currency may not be superior to the dollar's, he said.

"What's more, there are numerous technical implementation problems, so its outlook is not bright," Guan wrote.

Echoing the arguments Zhou made when advocating the SDR, Guan said China wanted countries that issue reserve currencies, especially the United States, to "shoulder their due international responsibilities" when setting economic policy.

"By actively participating in and promoting reform of the international currency system, China does not want to abolish or replace the dollar. Rather, it wants to protect and realize its national interests through limited and viable reforms," he said.

China would push the international use of the yuan to settle trade and would also promote regional currency cooperation "to contain the dominance of the dollar," Guan wrote.

(Reporting by Chris Buckley; Editing by Alan Wheatley and Ken Wills)

© Thomson Reuters 2009 All rights reserved